Case: 1.SEBI, 2.In Re: Ranbaxy Laboratories Ltd. Vs 1.Wallfort Financial Services Ltd.. Securities and Exchange Board of India
| Judges | V.K. Chopra, Member |
| Issue | Company Law |
| Judgement Date | December 11, 2006 |
| Court | Securities and Exchange Board of India |
Order:
V.K. Chopra, Member
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Background
1.1 M/s Wall fort financial services Ltd., is a broker of National Stock Exchange (SEBI Registration No. INB230852430), Stock Exchange Mumbai (SEBI Registration No. INB 010852433), Calcutta Stock Exchange with (SEBI Registration No. INB030852439). Securities and Exchange Board of India (hereinafter referred to in short as "Board") had conducted an investigation into the affairs relating to buying, selling and dealing in the shares of Ranbaxy Laboratories Ltd (hereinafter referred to in short as "Ranbaxy") on observing sudden spurt in the price and volumes of Ranbaxy traded in the Exchanges particularly on the Stock Exchange, Mumbai (BSE), National Stock Exchange (NSE), Calcutta Stock Exchange (CSE). The price of the scrip of Ranbaxy had moved up significantly during the period from Rs. 270/- in January 1999 to about Rs. 1200/- in October 1999 accompanied with significant increase in volumes.
1.2 The Board, after considering the Investigation Report, appointed an Enquiry Officer vide Order dated February 11, 2003 to enquire into the violations allegedly committed by M/s Wall fort financial services Ltd (hereinafter referred to in short as "Broker") under the provisions of the Regulation 7, read with Schedule II, Clause A(3) and (4) of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to in short as "Stock Brokers Regulations") and the provisions of Regulation 4(a), (b), (c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 (hereinafter referred to in short as "PFUTP Regulations") and Rules, Regulations and Bye-laws of the Stock Exchange.
1.3 The Enquiry Officer, after conducting an enquiry in accordance with the provisions of Regulation 6 of the Securities and Exchange Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to in short as "Enquiry Regulations") submitted a report dated August 11, 2004 under Regulations 13(1) of the Enquiry Regulations. The Enquiry Officer in his report observed that the broker had generated artificial volume in the scrip of Ranbaxy which amounts to misuse of trading system in terms of Regulation 4(b) of PFUTP Regulations and Clause A(4) of Stock Brokers Regulations. He recommended a minor penalty of warning to the broker.
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Show cause notice
2.1 Pursuant to the receipt of the said Enquiry Report, a show cause notice dated September 24, 2004 was issued to the broker, along with a copy of the said Enquiry Report, advising the broker to show cause as to why the action, as recommended by the Enquiry Officer or any other action should not be imposed on it. In the said show cause notice, it was specifically stipulated that the broker's explanation should be reached in SEBI within 15 days from the date of receipt of the said show cause notice and also advised it to indicate as to whether the broker is desirous of attending for personal hearing. The broker neither submitted its reply to the said show cause notice nor sought for a personal hearing.
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Consideration of issue
3.1 I have carefully considered the findings in the Enquiry Report. I find that the Enquiry Officer has dealt with the issue as to whether the broker has violated SEBI Circular No. SMDRP/POLICY/CIR-32/1999 dated September 14, 1999. I find that the said issue is beyond the scope of enquiry since the same were not covered under the Order dated November 29, 2002 appointing the Enquiry Officer.
3.2 The Enquiry Officer has also examined as to whether the trades executed by Wallfort are illegal and/or manipulative. He held that trades executed by the broker are in the nature of jobbing. During the enquiry proceedings, the broker has stated that in all except in one case, buy order has been placed first. The reason given by the broker for such manner of execution is that since NSE system was very slow for cancelling the part of buy orders, they entered trades for unexecuted quantity of shares so as to reduce losses. However, the Enquiry Officer rejected the said contention of the broker and held that once an order for buy is put in the trading system and the broker does not want to get the buy order matched, it only has the option to cancel the trades and should not enter into an opposite transaction which would generate artificial volumes. In view of this finding, Enquiry Officer held that the act of the broker had generated artificial volume in the scrip of Ranbaxy and misused the trading system which are in violation of Regulation 4(b) of PFUTP and Clause A(4) of Stock Brokers Regulations.
3.3 Further, I find that the entire charge levelled against the broker is on the basis of the structured/synchronised trades. I find that structured/synchronised deal is per se not illegal. On the other hand, such deal with fraudulent or deceptive intention to create misleading appearance of trading and to manipulate the price or volume of the scrip, is a grave offence.
3.4 Hence the issue to be...
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